Coffee prices surged today, with arabica up 2.16% and robusta 2.21%, due to below-normal rainfall in Brazil possibly affecting crop yields. Dwindling inventories bolster prices, alongside an increasing portion of Brazil’s coffee harvest already sold. The USDA projects heightened global production but warns of significant deficits ahead, exacerbated by climate conditions impacting coffee-growing regions.
Coffee prices experienced a notable increase today, with May arabica coffee rising by 2.16% and May ICE robusta coffee increasing by 2.21%. This surge follows the prior day’s gains, marking a 1-1/2 week peak for arabica and a 1-week peak for robusta. The recent below-average rain in Brazil poses a potential threat to coffee crop yields, bolstering price levels. The Brazilian meteorology service Somar reported that the Minas Gerais region, the largest arabica producer, received only 24% of its historical average rainfall. This situation is compounded by delays in reporting due to the Brazilian Carnival holiday.
Shrinking coffee inventories have further supported the rise in coffee prices, with ICE-monitored robusta inventories dipping to a two-month low of 4,247 lots. Arabica inventories reached a nine-and-a-quarter month low of 758,514 bags on February 18 but have since improved to a one-week high of 809,128 bags. Additionally, a higher portion of Brazil’s coffee harvest has been sold compared to prior years, indicating less available supply. Reports show that as of February 11, 88% of Brazil’s 2024/25 coffee harvest has been sold, surpassing both last year’s figure of 79% and the five-year average of 82%.
Concerns over coffee supply continue to influence prices positively. Brazil’s green coffee exports for January reportedly fell by 1.6% year-on-year, totaling 3.98 million bags. Furthermore, Brazil’s government crop forecasting agency, Conab, has lowered its forecasts, predicting a 4.4% decline in the 2025/26 coffee crop to a three-year low of 51.81 million bags. They also adjusted the estimate for the 2024 crop down by 1.1% to 54.2 million bags.
The persistence of dry El Niño weather from the previous year may cause long-term damage to coffee crops in South and Central America. Brazil has been facing drought conditions, recording the driest weather since 1981, which has adversely affected coffee trees during the vital flowering stage. Meanwhile, Colombia is slowly recovering from last year’s drought caused by El Niño, impacting its arabica production.
Robusta prices are strengthened by reduced production levels, particularly in Vietnam, where drought has led to a 20% reduction in coffee output for the 2023/24 season, marking the smallest crop in four years. Projections suggest a slight dip in Vietnam’s robusta production for the upcoming marketing year, emphasizing ongoing production challenges. Reports indicate that Vietnam experienced a 17.1% year-on-year drop in coffee exports in January, counterpointed by an increase in production estimates for the 2024/25 season.
Conversely, news of increased global coffee exports is applying downward pressure on prices. Brazil’s 2024 coffee exports have escalated by 28.8% year-on-year to a record 50.5 million bags, while Vietnam’s January exports also saw a rise. However, data from the International Coffee Organization indicated a year-on-year decline in global coffee exports overall for December.
The USDA’s biannual report presented a mixed outlook; global coffee production is expected to increase by 4% in 2024/25. However, production forecasts for Brazil have been cut, indicating possible deficits in future harvests. Volcafe has made significant reductions to its 2025/26 Brazilian arabica coffee forecast, anticipating severe drought impacts, leading to projected global deficits in coffee for multiple consecutive years.
In summary, coffee prices are rallying due to reduced rainfall in Brazil and decreasing inventories, raising concerns about future crop yields. Increased selling rates among producers further tighten supply. The long-term effects of drought, influenced by climate patterns like El Niño, continue to challenge coffee production in key regions. While global coffee exports rise, the overall market remains impacted by potential deficits anticipated in coming years. Insights from the USDA and other forecasts warn of shrinking coffee crops and heightened demand pressures, which will be crucial to monitor moving forward.
Original Source: www.tradingview.com
